DEFINITION OF DERIVATIVES

“Derivative is a product whose value is derived from the value of an underlying asset in a contractual manner. The underlying asset can be equity, FOREX, commodity or any other asset.”

• Securities Contract ( regulation) Act, 1956 (SC(R) A)defines “debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security”
• A contract which derives its value from the prices, or index of prices, of underlying securities.
• According to JOHN C HUL “ A derivatives can be defined as a financial instrument whose value depends on (or derives from) the values of other, more basic underlying variables”
• According to ROBERT L MCDONALD “ A derivative is simply a financial instrument ( or even more simply an agreement between two people) which has a value determined by the price of something else”

DEFINITION OF FUTURES

A Futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts.

FEATURES OF FUTURES

• Futures are highly standardized.
• The contracting parties need not pay any down payment.
• Hedging of price risks.
• They have secondary markets to.

TYPES OF FUTURES

On the basis of the underlying asset they derive, the futures are divided into two types:

• Stock Futures
• Index Futures